Archive for the “Return Optimization Securities” Category

When Lehman Brothers Holdings filed for bankruptcy protection on Sept. 15, investors who previously purchased the company’s 100% Principal Protection Notes (PPNs) thought they were protected. After all, Lehman’s own marketing brochures touted the notes as “100 percent principal protection.” Little did they realize that the value of the notes was contingent on Lehman’s own solvency. When Lehman filed for bankruptcy, it subsequently defaulted on many of the notes.

In the wake of the bankruptcy, a class action was filed on Nov. 6 on behalf of individuals who purchased Lehman Principal Protection Notes (PPNs) from UBS Financial Services, Inc. The complaint alleges that UBS brokers made false and misleading statements that omitted key facts about the risks connected to the Lehman notes.

“Investors should be aware of the pending class action,” said attorney Ryan K. Bakhtiari of Aidikoff, Uhl & Bakhtiari. “The class case has certain pitfalls that investors need to be aware of in selecting an attorney. In our opinion, most investors will fare better by filing individual arbitrations.”

The brokers who sold the Lehman PPNs are not targets of the investigation, according to the investors’ legal team, which includes the firms of Aidikoff, Uhl & Bakhtiari, of Beverly Hills, Calif.; Maddox, Hargett & Caruso, P.C., of Indianapolis, Ind. and New York, N.Y.; Page Perry, LLC, of Atlanta, Ga.; and David P. Meyer & Associates Co., L.P.A., of Columbus, Ohio.

For additional facts to consider before joining a Lehman Principal Protection Note Class Action, go to: http://www.marketwatch.com/news/story/Lehman-Principal-Protection-Note-Investigation/story.aspx?guid=%7BB1DCAE49-C622-4C49-BC55-CE6C17C887D0%7D

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.

Unprecedented growth and innovation in the structured finance market have intensified the need for greater transparency and improved risk management of certain structured products. A speech titled Structured Finance Activities: The Regulatory Viewpoint from Mary Ann Gadziala, associate director of the U.S. Securities and Exchange Commission, examines the challenges of these investments, and discusses the key principles for protecting investors, as well as the potential liability of financial institutions for securities law violations arising from deceptive structured finance products and transactions.

The speech can be viewed in its entirety at: http://www.sec.gov/news/speech/2006/spch092006mag.htm

For years, structured investment products (SIPs) were marketed by Wall Street as a way for risk-adverse investors to take advantage of stocks or other investments while maintaining some protection in the event of losses. Now, however, in the aftermath of the subprime crisis and the ongoing turmoil in the financial markets, many investors - especially those holding Lehman Brothers Return Optimization Securities or 100% Principal Protected Notes - are learning that some of the products fail to live up to their hype.

Structured investment products can take several forms. Generally, however, an SIP is an investment strategy that combines derivatives with other derivatives, including a single security, a pool of securities, options, indices, commodities, debt issuances, foreign currencies and swaps.

According to the Wall Street firms that invented them, the purpose of the products is to give investors access to commodities, stocks or other investments without actually having to “own” those assets.

In most instances, what investors do own is the unsecured debt of the issuer.

With Lehman Brothers’ Sept. 15 bankruptcy, the negative side of structured investment products is just now surfacing. The insolvency of Lehman means investors holding certain Lehman structured products stand to lose a substantial portion of their investment. Case in point: Lehman’s Return Optimization Securities and 100% Principal Protected Notes.

As reported Nov. 11, 2008, in the Wall Street Journal, some Lehman structured products are now trading for less than seven cents on the dollar, leaving U.S. investors who hold the products angry and broke. Many are now heading to court, filing class-action lawsuits against Lehman and the brokerages that sold them the products and failed to reveal their many risks.

In Hong Kong, where thousands of investors in Lehman notes face the prospect of losing their entire investment, about 200 individuals recently marched through the city’s financial district, holding signs that read: “Major bank fraud” and “My money gone, I don’t want to live.”

According to the Wall Street Journal article, the problems surrounding Lehman Brothers Return Optimization Securities and the 100% Principal Protected Notes could be just the starting point of what lies ahead. From January 2008 through early November, nearly $34 billion worth of structured investment products were sold to small U.S. investors.

What makes the issue even more disturbing is the fact that many of the investors in structured products are retirees or individuals nearing retirement age. They invested in principal-protected notes because they thought the products would, at the very least, give them back their original investment at a set maturity date. Moreover, many investors say their brokerage represented products like Lehman’s Return Optimization Securities or 100% Principal Protected Notes as a much safer investment than, say, stock investments.

Charles Brooks is one of those investors. Featured in the Wall Street Journal article, the Pennsylvania-based physician invested approximately 3% of his portfolio in two of Lehman’s structured investment products. When Lehman Brothers went bankrupt in September and he tried to sell the notes, the doctor was told to expect about seven cents on the dollar.

At 65, Dr. Brooks should be thinking about retirement. Instead, he may need to postpone that idea altogether.

Our affiliation of securities lawyers is actively involved in advising individual and institutional investors in evaluating their legal options when confronted with subprime and other mortgage-related investment losses.